Saudi Arabia and Russia have not enjoyed confidence with each other over the production of oil for several years now. OPEC records show that Russia never committed itself to cutting oil production along with its partners in the organization.
It was only when oil prices eventually fell to $30 and $40 per barrel that Russia realized that real cooperation with Saudi Arabia, OPEC’s largest producer, is the only way for maintaining financial returns for a large oil-rich country.
A new relationship has since developed between the two oil giants, initiated by the Custodian of the Two Holy Mosques King Salman and Crown Prince Mohammed bin Salman, President of the Saudi Economic Council, and implemented by Energy Minister Khalid Al-Falih and Minister of State for Energy Prince Abdulaziz bin Salman.
King Salman’s decisive visit
King Salman’s visit to Moscow in October last year, when he met President Vladimir Putin marked a starting point for oil and economic cooperation between the two sides and put a stop to the falling oil prices to alarming levels for oil-producing economies.
Since then, Al-Faleh has been keen on maintaining close cooperation with Russian Oil Minister Alexander Novak in order to keep cutting production of the world’s two largest oil producers so that the price improves and rises.
The price of Brent is currently above $ 62 per barrel. Furthermore, Al-Faleh announced last week in Riyadh the need to continue reducing oil production in the year, even if some shortages occur.
Reducing Russian and Saudi production and growing cooperation among the 24 OPEC countries and beyond have led to the doubling of oil prices in two yearsRanda Takieddine
Reducing Russian and Saudi production and growing cooperation among the 24 OPEC countries and beyond have led to the doubling of oil prices in two years. The role of Putin and Novak has been instrumental in persuading a number of Russian oil companies not to exceed their production cut-off agreement.
Some of these companies earlier feared losing their share of the oil markets for US oils, and some in the Russian Economy Ministry believe that high oil prices push the value of the Russian ruble, which reduces the competitiveness of Russia to export its goods.
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The economy of Russia is not entirely dependent on oil, unlike OPEC countries. History shows that the USSR was the first country to establish diplomatic relations with Saudi Arabia, known back then as al-Hijaz. After 1938, Saudi Arabia cut its ties with Moscow until relations were restored after the collapse of the Soviet Union.
Currently, oil cooperation between the two countries is growing with a potential Saudi investment entering the oil and gas sector in Russia. In April 2017, Saudi Crown Prince Muhammad bin Salman told The Washington Post that Saudi Arabia was coordinating its oil policy with Moscow to convince Russia that the relationship with Riyadh was a better bet than their relationship with Tehran.
Rising US production
Saudi-Russian oil cooperation has yielded great results, especially as the latter committed itself for the first time with OPEC to seriously and effectively reduce production.
In recent days, OPEC ministers, led by UAE Oil Minister Suhail al-Mazroui and secretary-general, Mohammed Berkandu, have been saying that surplus in global stocks is fading faster than expected after four years of surplus.
However, oil wells in America are being dug up very rapidly. Meanwhile, American production of oil is expected to increase also because of the incentives given by Trump administration to investment of international companies in America.
The US has emerged as an exporter of oil and gas, which has had an impact on global oil markets. In fact, the UAE has finally started importing some quantities of US oil.
Saudi Arabia is aware of the evolution of the US oil production over the markets, so it is looking more towards the Asian markets. It is also investing in the oil sector and refining in China, in addition to its aspirations to invest in Russia.
However, the rapid increase in US oil production is not a good sign for the OPEC bloc that was formed to regulate markets with a strict commitment to reduce production.
This article is also available in Arabic.
Randa Takieddine is a Lebanese writer and the director of Al-Hayat newspaper office in Paris.